Friction hits Indo-China investments

Trade between India and China is booming and has surpassed early expectations. But CNBC-TV18 reports that while trade is friction-less, Chinese investments in India are not.

Trade between China and India has been smooth ever since the thaw of 2003 and is expected to cross $20 billion, double the target set for last year. Though the trade is hugely in favour of China, India is taking the deficit in its stride, and on the soaring wings of optimism has set an ambitious target of $50 billion for 2010.

Ashwani Kumar, minister of state for commerce and industry, says, "We realise that it is our economic strength that will give us the requisite negotiating leverage as and when we have to negotiate. So the flavour is on economic consolidation."

But it is not just the border. Even Chinese investments are getting quite contentious. Huawei Technonologies, a Shenzen-based company, for instance, has been quite a draw with the private Indian telecom equipment buyers with its combination of quality and affordable pricing.

Gautam Sharma, deputy director, Huawei Technologies, says, "We have got an order from Bharti, from Reliance, etc. We are focusing more on private companies."

What Sharma does not say is the government firms are quite allergic to the company. It won a small order for MTNL but failed to get a slice of the $6-billion GSM contract from state-owned BSNL, through Motorola, apparently because it failed to make the grade.

Another Chinese firm, ZTE, was also disqualified. And earlier this year, Hutchison Port Holdings failed in its bid to set up container terminals at three Indian ports after a Cabinet bar on security grounds, though another group company, Hutch Essar, is a large telecom player in India. Two other Chinese companies also failed to secure port contracts for the same reason.

Ashwani Kumar says, "It is only when issues of security are raised that the government will take a closer look but I would say that there is no question of discriminating on principle against investment from Chinese companies."

More than a hundred Indian companies are currently operating in China, and they are treated like any other. Indian investment in China, currently at $130 million, exceeds Chinese investments in India, which the Chinese put at $47 million. China does not find India an easy place to do business, and they wished that the government did not make it harder still.

The National Security Council regards investments from countries, traditionally inimical to India''s interests as a security hazard and would like them to be subject to special scrutiny. The proposed National Security Exception Act is supposed to enable this. The government says the scrutiny is not country but firm specific, but the Chinese are not convinced.